Singapore: Oil deepened losses to a new six-week low on Tuesday as global stock markets swooned on the growing prospect of a US-led economic recession.
In morning trade, New York’s main contract, light sweet crude for February delivery, shed $2.44 to $88.13 per barrel.
London’s Brent crude fell 40 cents to $87.11 a barrel by 0120 GMT, while US crude traded at $88.20 a barrel, down about 60 cents from late Monday dealing. The NYMEX exchange did not set a settlement price on Monday as the open-outcry trading floor was shut for a public holiday.
On Monday Asian and European bourses took a hammering on mounting concerns that an economic stimulus proposal by US President George W. Bush last week would not be sufficient to stave off a recession.
That drubbing continued on Tuesday with South Korea and Australia markets nursing falls of almost 5%, while most of the commodity complex also took a beating as traders feared weaker demand for raw materials across the globe.
“The feeling now is the economic fall-out from the sub-prime issue in the United States might spread out to Japan, Europe,” said Tobin Gorey, a commodities strategist at Australia’s Commonwealth Bank.
The overwhelmingly negative sentiment across financial markets was coupled with selling by traders who were raising cash to cover margin calls in equity markets, traders said.
“The sell-off is not just on oil, it’s weighing in on everything,” Gorey added.
Oil has now fallen nearly 12% from a record high of $100.09 hit on 3 January, making it increasingly less likely that Opec would bow to US pressure to raise production when it meets in just over one week’s time to discuss policy.
On Monday US Energy Secretary Sam Bodman repeated a call for more oil from top exporter Saudi Arabia to try to bring down prices further, but ministers from Latin America said they saw no need to take action.
Venezuela’s Rafael Ramirez said on Monday he does not believe Opec needs to increase output, a view echoed by Galo Chiriboga from recent Opec joiner Ecuador.
There is already some evidence of weakening demand for refined fuels like heating oil and gasoline due to milder winter weather and higher prices, leading some refiners in the United States, Europe and Northeast Asia to cut back output.
“Due to lacklustre margins, there have been discretionary economic run cuts... In the meantime crude will have to ease for margins to be supported,” said Societe Generale in a research note.